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Is AIG Better Off Without Benmosche?

American International Group Inc. might be better off without CEO
Robert Benmosche
– even after he assured employees he's committed to staying, say some management watchers.

"He's done himself some lasting damage with Congress and regulators and this temper tantrum did not strengthen his hand," says Jeffrey Sonnenfeld, a senior associate dean at Yale's School of Management. "The board can't tolerate stare downs."

The Journal reported Tuesday night that Mr. Benmosche had threatened to quit the helm of AIG after expressing frustrations over government-imposed pay constraints. On Wednesday, he wrote employees a letter saying he "remains totally committed" to leading the government-controlled insurer through its challenges and will continue "to fight" on their behalf. The letter added that he and the board "are indeed frustrated" over pay oversight issues.

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Mr. Sonnenfeld says the memo indicates Mr. Benmosche is trying to align himself with the board and imply that they are on the same page. But Mr. Sonnenfeld thinks the board should look to find a replacement anyway.

The prospect of further CEO turnover endangers morale at a bad time, says
Eleanor Bloxham,
chief executive of the Value Alliance, a Westerville, Ohio, governance advisory firm. She thinks Mr. Benmosche's letter to employees is an attempt to address morale but doesn't do a good enough job expressing his commitment to persevere. "I don't think he addresses a very important area of confusion: his will to persevere," she says. "He could have sent a clearer message as to his own commitment to persevere throughout the current situation."

Any successor to Mr. Benmosche should have a solid history as a turnaround leader and a respect for government oversight, says
Michael Useem,
a management professor at the University of Pennsylvania's Wharton School. "You need someone who is acceptable to the powers-that-be in Washington and will work effectively with regulators," he says.

The heavy turnover atop AIG – a successor to Mr. Benmosche would be the insurer's fifth chief executive in 18 months – could complicate finding a replacement, Mr. Useem says. "It's a hot seat and it's going to take somebody who has an iron stomach and the will to turn it around," he says. "It's like a home on the block that has some significant history to it."

A spokeswoman for AIG said Mr. Benmosche and board members were unavailable for comment.